How should I think about RSUs?
Discussion
Lets say my base salary is £10k per year this year I am awarded £1k in RSUs. My base pay and shares stay the same value in each year. Should I think about my total pay as A or B?
A: £10k in 2022, £10k in 2023, £11k in 2024 (when I can actually use it).
B: £11k in 2022, £10k in 2023, £10k in 2024 (when I'm given the shares).
A: £10k in 2022, £10k in 2023, £11k in 2024 (when I can actually use it).
B: £11k in 2022, £10k in 2023, £10k in 2024 (when I'm given the shares).
Most RSUs have a vesting cycle. I have been getting them through employers for over 15 years (US tech companies).
I treat them as component of salary based on their vesting cycle. So to continue your analogy.
If you had a 4 year vesting cycle on the £1K I would think like this
Year 1(first anniversary of getting them) £250
Year 2 (often then allocate at 6.25%/qtr) £250
And so on until the £1000 is released.
Couple of points.
- In 15 years I have always had them as 25% on first vest the 6.25%/qtr hence figures above.
- if you have £1000 in total after tax in reality you have between ~£480-600 depending on your marginal rate.
- no you can’t give them to your wife to dodge tax.
- I sell as soon as they vest and treat as salary in that year. I know lots of people who hold them waiting for the big jump, climb, rocket to the moon. I have worked for companies that have done that but I also worked for Nortel where I lost loads waiting for them to climb.
- in theory you could be exposed to CGT if they climbed enough.
I treat them as component of salary based on their vesting cycle. So to continue your analogy.
If you had a 4 year vesting cycle on the £1K I would think like this
Year 1(first anniversary of getting them) £250
Year 2 (often then allocate at 6.25%/qtr) £250
And so on until the £1000 is released.
Couple of points.
- In 15 years I have always had them as 25% on first vest the 6.25%/qtr hence figures above.
- if you have £1000 in total after tax in reality you have between ~£480-600 depending on your marginal rate.
- no you can’t give them to your wife to dodge tax.
- I sell as soon as they vest and treat as salary in that year. I know lots of people who hold them waiting for the big jump, climb, rocket to the moon. I have worked for companies that have done that but I also worked for Nortel where I lost loads waiting for them to climb.
- in theory you could be exposed to CGT if they climbed enough.
Used to be paid a % of my bonus each year in RSUs. I treated them as nothing until they had vested (25% per year over 4 years) and I had sold them and received the funds into my account.
When I left that firm, I left behind an equivalent of 50% of my annual salary in unvested RSUs. It smarts a little but each year I was earning more of my total compensation in RSUs and so the problem was only ever going to get worse. I bit the bullet, lost those unvested RSUs and got a role elsewhere with a much simpler compensation structure.
When I left that firm, I left behind an equivalent of 50% of my annual salary in unvested RSUs. It smarts a little but each year I was earning more of my total compensation in RSUs and so the problem was only ever going to get worse. I bit the bullet, lost those unvested RSUs and got a role elsewhere with a much simpler compensation structure.
Ynox said:
Some companies also sell your RSUs when they vest, so you never have the opportunity to keep the stock after.
I think of them as a bonus and treat them like that. I don't e.g. use them for mortgage affordability calculations etc.
Can you provide an example as I have never heard of this scenario, I have seen RSU's sold at vesting to meet local initial taxation laws so most US firms will sell c50% of your vesting number before crediting your trading account.I think of them as a bonus and treat them like that. I don't e.g. use them for mortgage affordability calculations etc.
dibblecorse said:
Can you provide an example as I have never heard of this scenario, I have seen RSU's sold at vesting to meet local initial taxation laws so most US firms will sell c50% of your vesting number before crediting your trading account.
The very large German software company I work for works like this. 100% sold at vesting to cash and then the cash appears with your pay.cavey76 said:
Most RSUs have a vesting cycle. I have been getting them through employers for over 15 years (US tech companies).
I treat them as component of salary based on their vesting cycle. So to continue your analogy.
If you had a 4 year vesting cycle on the £1K I would think like this
Year 1(first anniversary of getting them) £250
Year 2 (often then allocate at 6.25%/qtr) £250
And so on until the £1000 is released.
Couple of points.
- In 15 years I have always had them as 25% on first vest the 6.25%/qtr hence figures above.
- if you have £1000 in total after tax in reality you have between ~£480-600 depending on your marginal rate.
- no you can’t give them to your wife to dodge tax.
- I sell as soon as they vest and treat as salary in that year. I know lots of people who hold them waiting for the big jump, climb, rocket to the moon. I have worked for companies that have done that but I also worked for Nortel where I lost loads waiting for them to climb.
- in theory you could be exposed to CGT if they climbed enough.
Interesting POV.I treat them as component of salary based on their vesting cycle. So to continue your analogy.
If you had a 4 year vesting cycle on the £1K I would think like this
Year 1(first anniversary of getting them) £250
Year 2 (often then allocate at 6.25%/qtr) £250
And so on until the £1000 is released.
Couple of points.
- In 15 years I have always had them as 25% on first vest the 6.25%/qtr hence figures above.
- if you have £1000 in total after tax in reality you have between ~£480-600 depending on your marginal rate.
- no you can’t give them to your wife to dodge tax.
- I sell as soon as they vest and treat as salary in that year. I know lots of people who hold them waiting for the big jump, climb, rocket to the moon. I have worked for companies that have done that but I also worked for Nortel where I lost loads waiting for them to climb.
- in theory you could be exposed to CGT if they climbed enough.
I'm almost 2 years into a company with the vesting schedule you mention, I've not done anything with them yet, I know some people who have bought them thinking that if they pay the taxes now, that when they rocket to the moon they will see a greater benefit.
I'm in two minds, obviously most firms that fit the above are in the red mostly at the mo, but maybe I should just flog an treat as salary.
okgo said:
Interesting POV.
I'm almost 2 years into a company with the vesting schedule you mention, I've not done anything with them yet, I know some people who have bought them thinking that if they pay the taxes now, that when they rocket to the moon they will see a greater benefit.
I'm in two minds, obviously most firms that fit the above are in the red mostly at the mo, but maybe I should just flog an treat as salary.
I can share the other side of that coin, I did the acquire / hold / watch them grow at SFDC and Adobe, best thing I ever did, genuinely changed our lives for the better for a nominal risk.I'm almost 2 years into a company with the vesting schedule you mention, I've not done anything with them yet, I know some people who have bought them thinking that if they pay the taxes now, that when they rocket to the moon they will see a greater benefit.
I'm in two minds, obviously most firms that fit the above are in the red mostly at the mo, but maybe I should just flog an treat as salary.
dibblecorse said:
okgo said:
Interesting POV.
I'm almost 2 years into a company with the vesting schedule you mention, I've not done anything with them yet, I know some people who have bought them thinking that if they pay the taxes now, that when they rocket to the moon they will see a greater benefit.
I'm in two minds, obviously most firms that fit the above are in the red mostly at the mo, but maybe I should just flog an treat as salary.
I can share the other side of that coin, I did the acquire / hold / watch them grow at SFDC and Adobe, best thing I ever did, genuinely changed our lives for the better for a nominal risk.I'm almost 2 years into a company with the vesting schedule you mention, I've not done anything with them yet, I know some people who have bought them thinking that if they pay the taxes now, that when they rocket to the moon they will see a greater benefit.
I'm in two minds, obviously most firms that fit the above are in the red mostly at the mo, but maybe I should just flog an treat as salary.
As an aside, and in terms of RSU tales - I knew a chap who sold a bunch to build a conservatory on his house - If he'd waited to cash them in until the time the conservatory was built, he could have built the entire house........he was bitter
I knew another chap that had RSUs but was so sure that they would go up, he held, and took money out of his mortgage to fund the taxes / effectively to buy more stock.....this didn't end well either......
whereas the sell-half folk, always do OK whichever way the share price moves......
Sorry for the multiple posts on this, but I've always thought the most helpful approach to the sell vs hold debate for RSUs is to ask yourself whether, given the cash instead, you would go out and buy those shares. I suspect that for most people the answer is no, but that some may want to double down on their own employer.
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